Tax Topics Simplified
What if you missed the tax deadline?
If you missed Tuesday, April 18th tax filing deadline, I would urge you to file as soon as possible. Taxpayers who owe, and missed the deadline without requesting an extension should file quickly to limit penalties and interest. Taxpayers should file their tax return and pay any tax they owe as soon as possible to reduce penalties and interest. An extension to file is not an extension to pay. An extension to file provides an additional six months with a new filling deadline of October 16th. Penalties and interest apply to taxes owed after April 18th and interest is charged on tax and penalties until the balance is paid in full. Filling and paying as much as possible is key because the late filling penalty and late payment penalty add up quickly. Even if a taxpayer can’t afford to immediately pay the full amount of taxes owed, they still should file a tax return to reduce possible late filling penalties. The IRS offers a variety of options for taxpayers who owe the IRS but cannot afford to pay. For more information about the variety of options click on the link below.
Penalties & Interest Explained
Interest accrues on unpaid balance and compounds daily from April 18th until you pay the balance in full. The rate is equal to the federal short term rate plus three percentage points. The first quarter 2023 interest rate for underpayment is 7%.
Late Payment Penalty
Late payment penalty is imposed on tax that you owe but did not pay by April 18th. Late payment penalty equals to 0.5% of the tax owed after April 18 for each month. The penalty is capped at 25% of the amount owed.
Failure to file Penalty (FTF)
If you did not file your tax return by the April 18th and did not request an extension to file, the IRS can impose 5% FTF penalty on any unpaid taxes for each month, and the penalty won't exceed 25% of your unpaid taxes. If you return is over 60 days late, the minimum FTF penalty is the smaller of $435 (for tax returns required to be filed in 2023) or 100% of the tax required to be shown on the return.
Failure to Pay Penalty (FTP)
If you still have not paid what you owe five months after April 18th, FTF penalty will max out, but the FTP penalty will continue until tax is paid, up to 25%.
How does Installment Agreement work?
If you owe taxes but are not able to pay all of it, you should consider setting up an installment agreement with the IRS or the state you file in. If you are an individual, you may qualify and apply online for long term payment plan (if you owe $50,000 or less) which would allow you to pay in 72 installments or for short term payment plan (if you owe less than $100,000 in combined tax, penalties, and interest) which would allow you to pay in 180 days.
The state of Louisiana also allows taxpayers to set up an installment agreement which allows taxpayers to pay over a period of minimum six months and maximum of 36 months. Both Federal and Louisiana installment agreements have a setup fee. Below is the link to the IRS website where you can read some more details about setting up short- or long-term installment agreements. The form which you would use to apply for Louisiana Installment Agreement is R-19026.
Where is my refund?
The IRS issues refunds in 3-4 weeks, however it is possible that your tax return may require additional review and take longer. 9 out of 10 times if you provided direct deposit information for your refund, based on the IRS, the taxpayers can expect to receive refund in less than 21 days. Below is the link where you can check the status of your federal tax return refund.
News you can use
IRS Plan for Audits for 2022
IRS Commissioner Danny Werfel told the senate Finance Committee on Wednesday that the IRS will not be focusing on individuals with income under $400,000. It is most likely that they will use the audit rates from 2018 to determine what percentage of individual taxpayers reporting income under $400,000 a year will be audited. According to the 2022 IRS Data Book release last week, the audit rates range from 0.2% for returns of individuals filers with income of $50,000 to $200,000 to 9.25 for returns of individual filers reporting income over $10 million, with a rate for all individual returns filed of 0.3%. For a full article click on the link below.
Interesting Facts
The worst states to be a taxpayer
I came across an interesting article that I wanted to share with y’all. If you think that you are paying too much in taxes to the state and you live in Louisiana, check out this article. The worst five states in the ranking had an average effective sate and total tax rate for the median US Household of 14.31% while the average annual state and local tax bill for a median U.S. Household was $9,950. The average effective state and total tax rate for Louisiana is 10.75% or $5,710.
Dragana's World
Tax Season Overview
Every tax season is a little different. This tax season had its own challenges as this was the first tax season that I have been on my own. I would like to use this opportunity to Thank all of You for all referrals and support. If you still know someone who needs help with tax and accounting work, I would be happy to meet with them and discuss to see if we would be a good fit. Now that tax season is over, I am playing more pickleball and will be competing in several tournaments that are coming up this summer. I will make sure I keep you all informed of the progress.
UPDATE ON LONGVIEW PICKLEBALL TOURNAMENT:
Mixed Doubles - Gold
Womens Single - Silver